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Slumping oil prices force Azerbaijan to stop propping up currency

Oil1Energy-rich Azerbaijan, whose economy has been hit hard by falling oil prices, withdrew support for its embattled currency on Monday and the manat plunged by nearly a third against the greenback.

“The central bank took the decision to switch to a floating exchange rate for the national currency as of December 21,” the regulator said in a statement.

The central bank said the decision was taken because “falling oil prices and the continuing devaluation of partner countries’ currencies has begun to negatively affect the Azerbaijani economy.”

The manat was trading at 1.55 against the dollar on Monday, down 32.3 percent from Friday.

The country’s central bank has spent more than half of its foreign currency reserves to support the currency, which has been in free fall since the beginning of the year.

Following Monday’s move, the bank’s currency reserves increased by 3.1 billion manats ($2.9 billion; 2.7 billion euros).

Azerbaijan’s decision came after the energy-rich Central Asian nation of Kazakhstan abandoned its currency band for a free-floating exchange earlier this year.

Analysts said the move would not affect the Russian ruble but would negatively impact the majority of regional currencies.

“The move can be considered to be neutral for Russia: the weak ruble, in addition to low oil prices, was itself the trigger for Azerbaijan’s currency move,” said Oleg Kouzmin, an economist with Renaissance Capital.

He described the prospects for Kazakhstan’s tenge as “slightly negative,” adding that the Georgian lari — which has lost nearly 45 percent of its value against the dollar since November 2014 — is expected to be most affected.

Energy exports constitute up to three quarters of Azerbaijan’s state revenues, making the Caucasus country’s economy highly dependent on global oil prices.

The Caspian nation in February abandoned its dollar peg and switched to a dollar-and-euro basket and also devalued the manat by more than 33 percent.

Oil prices extended losses Monday, with Brent at one point sinking 2.1 percent to $36.09 a barrel — its weakest since July 2004.

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